7/29/2014

No sooner had President Obama signed the Budget Control Act than Washington began speculating on when Congress would repeal it.

Three years since the law was enacted on August 2, 2011, it is fair to say that Washington has officially given up hope.

The law — which brought to an end a debt-ceiling showdown that had threatened to lead the United States into default and set strict limits to discretionary domestic and military spending through 2021 — is here to stay, at least through the end of the Obama administration. The government continues to absorb steep spending cuts of up to a trillion dollars over the next decade, the federal deficit has plummeted, and congressional fiscal hawks hail the BCA as a win for the taxpayers.

No agency has pleaded for relief from the BCA as eagerly as the Defense Department, the largest spender of discretionary federal dollars. The Pentagon's top generals are still in disbelief that their push to overturn sequestration has been fruitless.

"It's just not resonating," Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said of the Pentagon's appeal to Congress. "I have a master's degree in English from Duke University. I’ve tried every adjective I can think of to describe the effect of this, to no avail," Dempsey said last week at the Aspen Security Forum. The Pentagon leadership assumed that dire warnings of cuts leading to a "hollow force" and other alarmist rhetoric would break the partisan deadlock but they misjudged the anti-spending mood in Congress.

"We don’t’ want to be seen as another interest group asking for a bigger share of the budget," said Dempsey.

The March 2013 sequestration reduced the 2013 base budget by $32 billion. Fiscal year 2014 appropriations reduced defense funding by $31 billion compared to the president’s request. The administration sought $495.6 billion for military spending in 2015 in line with the Bipartisan Budget Act of 2013, which gave the Pentagon partial relief from the spending caps. The Defense Department is now seeking future base budgets that exceed the BCA caps from fiscal years 2016 to 2019 by $115 billion, and an additional $26 billion in 2015 for procurement of new equipment.

Defense Secretary Chuck Hagel and his predecessor Leon Panetta have argued that deficit reduction should not come solely at the expense of the military or other agencies, but should entail reforms to mandatory benefits programs such as Medicare and Social Security. But there is no desire or will in the body politic to take on these unpopular reforms.

Defense officials are becoming less optimistic about Congress approving the extra $26 billion they requested for 2015 or the $115 billion sought in later years. Dempsey said he and others have explained the impact of the cuts in terms of "risk" and "reduced readiness," but he conceded that those are "elusive" terms that are hard to explain. "When you try to articulate that, it’s not as persuasive as I’d like it to be."

Sequestration has not turned the military into a hollow force, but Dempsey suggested that if the spending caps stay in place in the coming years, the military will be substantially weakened. An immediate consequence, especially as the Army shrinks by nearly 100,000 troops between now and 2019, will be limits to what the United States can do in response to crises. The idea that the Army would only be able to fight one conflict at a time has been inconceivable during his 40 years of service, said Dempsey. "We are approaching that point right now," he said. "We have a near-term readiness crisis. I have a force that I can’t train at that size. Then we eventually shrink and we’re back in balance but it is not going to be big enough to meet global obligations," he said. The ultimate effect of the Budget Control Act, he said, is that "we will no longer be immune from coercion."

Another, less tangible, ramification of leaner budgets is that it fuels a perception of a U.S. military in decline, even though its leaders insist that the force is on point. "I’m in an awkward position," said Dempsey. "I have to articulate the effects of sequestration [and] when I do that I am contributing to a message of decline." The reality, he said, is that "we have resources today, but we may not have them in the future, to keep ourselves and our allies safe."

Also in an awkward position regarding sequestration is the defense industry, which adopted doomsday rhetoric that proved to be overblown. Further, the industry's top firms have seen soaring profits since the Budget Control Act became law. Wall Street has rewarded companies for workforce cuts and stock repurchases.

Analysts predict pain still lies ahead for the defense sector. "Anyone who believes that 'This, too shall pass,'" is in complete denial about the political landscape, said Randall Garber, partner at A.T. Kearney public sector and defense services.

Politicians have no incentive at this point to take a stand against the Budget Control Act, said Garber. "The mandatory caps caused a lot of hyperbole but the average taxpayer hasn't seen that much change. It's almost invisible." There are only "pockets of pain" such as the military ground vehicles sector. "If I'm a politician, and my voters aren't screaming at me to fix this terrible sequestration problem, the politically expedient thing is to sit back and let the default option continue to play out."

The rewards for taking no action are greater than those for taking action, he said. "The Budget Control Act is a convenient default mechanism that requires no action from Congress until 2021."

The next likely window of opportunity to overturn the law, barring a major national security crisis, will be the 2016 election, Garber said. "It's hard to imagine what dynamics would cause sequestration to be interrupted before at least 2017," he said. "People are learning to live with it."

Of concern to the defense industry is that the cuts have not yet served as a catalyst for business reforms that would help reduce the cost of weapon systems and save programs from future terminations, said Garber. "We are not seeing urgency for fundamental change. We're seeing short-term actions to fit within next year's budget limits. And a fair amount of denial and kicking the problem down the road."

The Pentagon would rather delay or stretch programs than overhaul its traditional procurement system, he said. "At what point do cuts become a forcing function to cause people to challenge the existing business model?"

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